Whole Foods Takes Manhattan

Flush with the positive reception of its new 58,000 sq. ft. Manhattan flagship at Columbus Circle, Whole Foods is now opening new stores in Greenwich Village on West Houston and Union Square. And some of its competitors in the upscale groceries market, including Trader Joe's, are reportedly scouting locations as well.

Why is the 158-store chain expanding here just now? “Their store in Chelsea was their best store until they opened their second [Manhattan] store in Columbus Circle, and now that's the best store in the chain, so they're two for two,” says Scott Van Winkle, a food and beverage analyst at Adams, Harkness & Hill in Boston. Whole Foods now has 11 outlets in the tri-state area.

Whole Foods registers sales of $800 per sq. ft. while most grocers sell about $500 per sq. ft., according to Van Winkle. Whole Foods also is more profitable — 3.59% profit over the past 12 months, compared with a negative 3.81% for local competitor Gristede's, according to Dow Jones data.

Whole Foods' Manhattan campaign is occurring at a time when most of its competitors are financially quite weak. “They [Whole Foods] are not on the same planet,” says Howard Davidowitz, chairman of Davidowitz & Associates, a New York City-based retail consulting and investment banking firm.

A Wall Street darling, Whole Foods Markets' stock has outperformed the Dow Jones food retailer and wholesaler index by nearly 340% over the past five years: 314% growth even as the average grocer sank by minus 17.15%. Today, the Austin, Texas-based company's stock stands at $87, giving it a market cap of $5.3 billion. Local competitor Gristede's stock is hovering now at around 85 cents, with a market cap of $17 million, and its stock is under-performing the industry by an unappetizing negative 40%.

A number of factors may be contributing to Whole Foods' penetration in Manhattan. Hugh Boyd, a Montclair, N.J.-based architect who specializes in designing upscale food markets, says that there's more available space now than a few years ago when national chains such as The Gap were expanding. Additionally, landlords have a greater appreciation of the virtues of dealing with one big tenant rather than a number of small ones. Realtors also are realizing “that food is a destination,” Boyd says, and useful for pulling in foot traffic to nearby properties.

The flexibility of Whole Foods and other grocers to take locations traditionally considered less attractive for retail, such as a basement or a second floor, also makes them attractive tenants. New York retail broker Faith Hope Consolo, vice chairman of Garrick-Aug Worldwide, says that spaces that might have become a health club in the past are now suddenly perceived as an attractive home for a large store. For a landlord, she says, getting a store like Whole Foods can be “a wonderful opportunity.”

Of course, food is probably the most important part of Whole Foods' opportunity here. Retail consultant Davidowitz says the dominant local chains, Gristede's and D'Agostino, are weaker in the prepared foods and delis segment, and prepared food is a key category for busy, affluent New Yorkers. “New York is a take-out town,” he explains.

In produce, another key category, Davidowitz says the competition has diminished in recent years. The ranks of Korean grocers that used to be strong produce providers have thinned since they first opened on a large scale in the early 1980s, the victim of rising rents and a city campaign against stores that paid their workers less than minimum wage.